India may announce steps to cut fuel use this month

Reuters Staff

3 Min Read

An employee counts money at a fuel station in Kolkata April 7, 2011.Rupak De Chowdhuri

NEW DELHI (Reuters) - India could announce steps to curb fuel consumption on September 16, Foreign Minister Salman Khurshid said on Friday, in a bid to cut the biggest item in the country's import bill and help support a rupee skittering just above record lows.

The world's fourth-biggest energy user is widely expected to announce a steep hike in diesel prices soon, as it looks to cut oil costs by nearly $20 billion. Rising global prices of crude and the rupee's slide have left India facing an oil bill potentially 50 percent higher than on May 1.

"No matter what happens, we will have to cut down on fuel consumption," Khurshid told business channel CNBC TV18. "You can't keep subsiding costs of fuel and not restrict the use of the fuel."

Oil Minister M. Veerappa Moily could unveil fuel-saving measures when he returns from a trip next week to Japan and South Korea. Khurshid gave no details of the possible steps.

Moily has already suggested ways to cut fuel import costs in letters to the prime minister and finance ministry a week ago, ranging from a street theatre campaign encouraging economies to stepping up imports from Iran that India pays for in rupees.

But India, where energy consumption per person is among the lowest in the world, has little elasticity in its fuel use as it tries to power exports and agriculture to help boost its economy and stave off a currency crisis.

More than 40 percent of fuel demand, or about 1.4 million barrels per day (bpd), is for diesel, and the bulk of that is used by trucks, farmers and industry, which needs back-up generators to cope with the country's frequent power blackouts.

The government subsidizes diesel prices, which are now about 10 rupees a liter below estimated market rates. Petrol prices are not subsidized.

An increase of 5 rupees per liter on diesel could save about $4.3 billion in oil costs, Reuters calculations show. Total subsidies on fuel amount to about $25 billion a year and India's crude oil import bill was $144 billion last fiscal year.

Khurshid said Indians were increasingly realizing the "inevitability" of moving away from government-controlled prices. "That's beginning to happen, but has political implications," he said.

Fuel price hikes generally provoke stiff resistance from opposition parties and any hike now is expected to draw a bigger protest, with a general election due next year. The election must be held by May 2014.

Diesel demand has edged down 1.1 percent between April and July, Oil Secretary Vivek Rae told Reuters, largely due to reduced consumption by trucks as heavy monsoon rains in June and July hit road transport. The rains also reduced the need for farmers to run irrigation pumps.

Overall products use rose 1.1 percent between April and July, Rae said, with petrol consumption up 11.4 percent. Two-wheelers, which run only on petrol, are the backbone of private transport in India, where middle-class incomes are still too small for most families to afford cars.